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CONCORD – Higher education, mental health services and the state's largest hospitals will receive more money in the proposed two-year state budget Gov. Maggie Hassan presented to lawmakers Thursday.

The governor pays for the additional spending with money from casino gambling, higher tobacco taxes and an increase in the number of insurance premiums resulting from the Affordable Care Act.

Republicans objected to including $80 million from gambling licensing in her revenues. (See related story, Page A3.)

"We have enough trouble relying on traditional sources of revenue without injecting a one-time $80 million license fee based on an activity that is currently illegal and hasn't ever passed this legislature," said House Minority Leader Gene Chandler, R-Bartlett. "Individual positions on gambling aside, putting expanded gaming revenue into the budget is setting us up for failure. It's gambling on gambling."

But House Speaker Terie Norelli, D-Portsmouth, said Hassan has every right to propose a budget with policies she endorses. If the House does not approve gambling, then it will need to find $80 million to cut from the budget, she said.

"The question is: Will we allow Massachusetts to take revenue from New Hampshire's residents to fund its needs, or will we develop our own plan that will allow us to address social costs and invest in our priorities?" Hassan asked.

Another controversial part of Hassan's budget proposal is the expansion of Medicaid, the federal-state health insurance program for the poor and elderly, which may need legislative approval.

Senate Majority Leader Jeb Bradley, R-Wolfeboro, questioned if the federal government would live up to its promise to pay 100 percent of the cost in the first three years.

With trillion-dollar deficits that continue to grow, he said, if you believe the federal government will pay its share, "I've got a bridge I want to sell you."

Medicaid expansion is projected to cost the state about $18 million over seven years, while the federal government is expected to pay $2.5 billion to hospitals and other health care providers.

The governor's proposed general fund budget is an increase of $184.2 million over the last biennium, or a 7.1 percent increase. The state's general fund budget would be $2.8 billion over the 2014-15 biennium, compared to $2.6 billion for the current biennium.

With federal money and other state revenue such as highway funds and court fines, the total state budget over the next biennium would be $11.1 billion. That compares to $10.1 billion for the current year, a 10.2 percent increase.

Here are the highlights:

-- Tobacco tax. Hassan proposed increasing it 20 cents. The tax automatically increases 10 cents this summer. The 30-cent increase will raise the tax to $1.98 a pack, the lowest in New England. The rate increase provides about $40 million in new revenue.

-- Affordable Care Act. Hassan expects the insurance premium tax revenues to increase $22.6 million in fiscal 2015 due to the act, which requires all individuals to have health insurance and the expansion of Medicaid.

-- University System of New Hampshire. USNH would receive $55 million more in state aid during the next two years, while the Community College System of New Hampshire will be fully restored to 2011 funding levels and receive an additional $3 million for a total of $83 million. With the additional money, the boards of trustees of the two systems are likely to freeze tuition for the next two years. Hassan would also provide $4 million in need-based scholarship money for both public and private universities.

-- Charter schools. An additional $18 million in funding would allow new applications to be approved. But Hassan wants the State Board of Education to determine where new charter schools are needed and in which study areas.

-- Hospitals. The state's largest ones will recoup some of the $100 million a year they lost in uncompensated care aid in the current budget.

-- Mental health system. Hassan's budget will spend $28 million more, establishing a 16-bed, acute care residential facility for short-term patients and a 10-bed receiving facility in the central part of the state to take the pressure off emergency rooms. Her budget adds 75 new community residential beds, housing support services for 100 additional people and additional funding for the peer support system.

-- Women's prison. Hassan's nearly $130 million capital budget includes $38 million for a new prison.

The House has until April 4 to vote on the budget; the Senate must finish its work by June 6. A new budget needs to be adopted by June 30.